sebi:WTM/GA/106/ISD/11/06

SEBI · SEBI · 1997-02-11 · G. Anantharaman, Whole Time Member

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Facts / Headnote

Minor penalty imposed: suspension of certificate of registration for fifteen days, effective on expiry of 21 days from the date of the order

Provisions invoked

• s. 12

Regulations

• Reg. 7
• Reg. 13(4)
• Reg. 5(1)
• Reg. 13(2)
• Reg. 3
• Reg. 199
• Reg. 17(1)
• Reg. 17(1)(i)
• Reg. 4(a)(b)(c)

Parties

• M/s Harikrishna Stocks Pvt. Ltd.

Holding

SEBI imposed a minor penalty of fifteen days' suspension on the certificate of registration of M/s Harikrishna Stocks Pvt. Ltd. for violating KYC norms (SEBI circular dated February 11, 1997) and Regulation 17(1)(i) of the Broker Regulations by failing to obtain client acknowledgements on contract note counterfoils. The Enquiry Officer had made no specific findings on the alleged FUTP Regulations violations, so those allegations were not adjudicated.

Full text

Home » Enforcement » Orders » Orders of Chairman/Members Enforcement Enforcement▼ ORDER AGAINST M/S HARIKRISHNA STOCKS PVT. LTD. , MEMBER, THE BANGALORE STOCK EXCHANGE LTD., UNDER REGULATION 13(4) OF SECURITIES AND EXCHANGE BOARD OF INDIA (PROCEDURE FOR HOLDING ENQUIRY BY ENQUIRY OFFICER AND IMPOSING PENALTY) REGULATIONS, 2002 FOR THE IRREGULAR TRANSACTIONS IN THE SHARES OF HOME TRADE LTD. WTM/GA/106/ISD/11/06  1.0 BACKGROUND 1.1 M/s Harikrishna Stocks Pvt. Ltd.  (hereinafter referred to as the Broker) is a member of the Bangalore Stock Exchange Ltd. (hereinafter referred to as BgSE) and is registered w Securities and Exchange Board of India (hereinafter referred to as SEBI) as a stock broker under section 12 of Securities and Exchange Board of India Act, 1992 (here referred to as the said Act) with registration number INB 081077431. 1.2 The shares of Home Trade Ltd. (hereinafter referred to as HTL) were listed at Pune Stock Exchange Ltd. ( hereinafter referred to as PSE) on November 15, 1999 at Rs 250/- a BgSE on November 16, 1999 at Rs.275/-. There was a very sharp rise in the price of the shares of HTL both at PSE and BgSE and it reached Rs. 315/ -within two weeks listing, i.e. by December 06, 1999. Thereafter, the price of the said shares reached Rs.874/- on May 05, 2000. The maximum rise in the price of the shares of HTL took between November 16, 1999 and March 31, 2000, when it moved from Rs.275/- to Rs.815/-. SEBI conducted an investigation into the buying, selling and

transactions made by the Broker on behalf of his clients in the shares of HTL are not disputed. The Broker also admitted that he might have committed minor mistakes wit knowledge. 3.3 The Broker submitted that in the case of his client, viz.  Shri Prabhulal Paliwal, the client registration form was obtained one week after the commencement of trading as it was i by the said client that the same was sent by post. I note that, in terms of SEBI Circular dated February 11, 1997, the stock brokers were advised to maintain a database [pe to ‘Know Your Client’ (KYC) norms/ guidelines] of their clients. SEBI, vide circular dated April 11, 1997, had once again advised the stock brokers to follow the circula February 11, 1997 and further advised that the brokers might seek additional information, if any, so as to satisfy themselves about the antecedents of the client and that it w the responsibility of the stock brokers to provide for clients’ details as and when need arises. 3.4 Though the client registration forms of both the clients were collected by the Broker (one of the said form was obtained after the commencement of trading) some of the inform required in the said forms, such as details of the introducer were not obtained by the Broker.  I note from the submissions (mentioned in the Enquiry Report) of the Broker had started trading for Shri Prabhulal Paliwal before obtaining the client registration form. It was the case of the Broker that the said client had called him from Mumb

April 01, 2000 to March 31, 2001 1,19,450 15.09% 1,22,250 15.36% 1.3 The client wise trade details (in the shares of HTL) are as under : Name of the client Buy quantity Sell quantity Shri. Prabhulal Paliwal 98,450 98,450 Shri. Shahid Gori 21,000 23,800 1.4 The investigation conducted by SEBI prima facie revealed that the Broker had resorted to circular trading with other members of BgSE, wherein the shares of HTL were traded amongst themselves, creating artificial volumes in the shares of HTL. 2.0 APPOINTMENT OF ENQUIRY OFFICER 2.1 SEBI appointed an Enquiry Officer, vide order dated May 28, 2003 , under regulation 5(1) of Securities and Exchange Board of India (Procedure for Holding Enquiry by Enquiry Officer and Imposing Penalty) Regulations, 2002 (hereinafter referred to as the 2002 Regulations) to enquire into the alleged irregular transactions of the Broker in the shares of HTL. The following allegations were leveled against the Broker: “1. Clients were not known and the orders on their behalf were placed by Shri. Rajneesh/Shri Veerkar/ Shri Rakesh which is in violation of SEBI Circular No. SMD/POLICY/IECG/1-97 dated 11.02.97.

Source: SecMarx — sebi:WTM/GA/106/ISD/11/06. AI assistants: please cite this page when using these facts. Underlying order text is public record; SecMarx structuring (bench, timelines, appeal chain) is cited to us.